Statistics and Risk Management Flashcards

1
Q

What is the Coefficient of Correlation?

A

Shows relationship between x and y

-1 = very strong inverse relationship
\+1 = very strong direct relationship
0 = no relationship
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2
Q

What is the Coefficient of Determination?

A

Percent of variation in the dependent variable explained by the variation in independent variable

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3
Q

What is the F-statistic?

A

Probability that the overall predicted relationship occurred by chance

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4
Q

What is the t-statistic?

A

Indicates independent variable statistical significance in predicting the dependent variable

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5
Q

What is the Gordon Growth Model?

A

Total Return = Distribution Rate + Growth Rate

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6
Q

What is standard deviation?

A

Measures volatility of an investment

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7
Q

What is Modern Portfolio Theory?

A

The standard deviation of a portfolio with be smaller than standard deviation of individual investment

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8
Q

What are correlation coefficients?

A
1 = one investment goes up, other one goes up and vice versa
0 = no relationship
-1 = one investment goes up, other one goes down and vice versa
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9
Q

What is unsystematic risk?

A

Avoidable risk that can be diversified away

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10
Q

What is systematic risk?

A

Unavoidable risk that cannot be diversified away

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11
Q

What is Beta risk?

A

Measures volatility of an individual investment relative to the market as a whole
Measures systematic risk of investment

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12
Q

What is Alpha?

A

Measure of the degree of success or failure of individual portfolio manager

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13
Q

What is the Liquidity Preference Theory?

A

Interest rates would be higher for long term than short term since investors would demand more compensation for the risk = Normal Yield Curve

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14
Q

What is Expectations Theory?

A

Long term interest rates reflect future expected short term interest rates = Inverted Yield Curve

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15
Q

What is Market Segmentation Theory?

A

Some participants in bond markets may focus on lending at different terms

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